On Thursday, South Korea’s government has announced its plans to ban cryptocurrency trading, causing the Bitcoin price to crash and flipping the coin market into chaos as its police and tax government assaulted the local exchanges for alleged tax evasion.
In South Korea, a critical root of international demand for cryptos, there’s a limitation that came through as policymakers internationally have experienced difficulties to regulate an asset, whose value has exploded during last year.
Park Sang-ki, the Minister of Justice, said that the government were preparing a bill to ban trading of the digital currency on domestic exchanges.
According to the ministry’s press office, Park said:
“There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,”
Despite the market’s sharp reaction to the announcement, South Korea’s Presidential office said a ban on the country’s coin exchanges has not been completed while but it still was being considered as one of the measures.
At the justice ministry, a press official said the ban on cryptocurrency trading was formulated after discussions with other government agencies such as the finance ministry and financial regulators.
When the bill will be drafted, legislation will require the vote of the total 297 members of the National Assembly, which is normally a lengthy process.
The tough stance of the government has begun a selloff of the cryptos on local and offshore exchanges. The proposed regulations triggered a selloff of cryptocurrencies across both local and worldwide exchange platforms.
After the news came out, the price of Bitcoin lost 21% of its value in the middle of the day to $17,064.53. However, it is still trading at about 30% more expensive when compared to other countries. South Korean cryptocurrency-related shares were also affected, experiencing a daily trading limit of 30% each.
Mun Chong-hyun, chief analyst at EST Security, said that when enforced, the ban “will make trading here difficult, but not impossible”. He said:
“Keen traders, especially hackers, will find it tough to cash out their gains from virtual coin investments in Korea but they can go overseas, for example Japan.”
Cryptocurrency analyst at NH Investment & Securities, Park Nok-su, declared the herd behaviour in South Korea’s coin market has raised concerns. Bitcoin’s 1,500 percent surge last year has caused a huge demand for cryptos in South Korea, attracting people from all walks of life. Park said:
“Some officials are pushing for stronger and stronger regulations because they only see more (investors) jumping in, not out.”
According to Korea Blockain Industry Association, there are more than 12 cryptocurrency exchange platforms in South Korea.
This week, Coinone and Bithumb, some of the nation’s largest crypto exchanges, have been assaulted by the police and tax agencies for tax evasion. These assaults were the result of the work done by the finance ministry, who is looking for new ways to tax the cryptocurrency market.
It seems that some investors have decided to take preemptive action and cash out some of their profits.
Eoh Kyung-hoon, a 23-year old investor said:
“I have already cashed most of mine (virtual coins) as I was aware that something was coming up in a couple of days.”
On Monday, website CoinMarketCap has removed the prices for Bitcoin from South Korea’s exchanges, because they were trading at 30% more expensive in Asia’s fourth largest economy.
An official at Coinone told Reuters that they have been raided by the Tax Service this week. He also said that Coinone was cooperating with the investigation.
On Wednesday, Bithumb, the second largest digital currency operator in South Korea, has also been raided by the tax authorities. An official at Bithumb declared:
“We were asked by the tax officials to disclose paperwork.”
South Korean financial authorities said they are inspecting six banks that offer virtual currency accounts, which created concerns that the increasing use of assets could lead to a surge in crime.